The Social Trading Phenomenon Explained

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Thanks to the internet, the world has become a smaller and more connected place than ever before. Rapid advancements in connectivity speeds and reliability have also had a seismic impact on the world of financial trading. Serious traders can connect to the markets via state-of-the-art trading software and execute trades with laser-like precision. Time-poor retail traders don’t always have the same luxury of time to dedicate to researching and managing their trades, which is why the social trading revolution has begun.

The success of social media platforms has encouraged many leading online brokerages to deploy social trading portals that allow newbies and retail traders with hectic work-life balances to follow the advice of profitable traders instead. Just like one would follow the industry advice of a fellow professional on LinkedIn, these social trading networks are designed to provide a platform for new financial traders to learn from the best in the markets.

It’s also a great opportunity for profitable traders to earn an additional commission when others auto-copy their trades. At INFINOX, which offers social copy trading via its IX SOCIAL platform, traders are recompensed for the number of clients that actively copy their strategies. The IX SOCIAL portal includes a social trading ‘leaderboard’ that professional traders can move up and down based on their number of followers.

How does auto-copy trading work?

Once you’ve chosen to ‘follow’ a particular trader within the social trading network, every trade they place is broadcast to their followers via their social feed. It’s possible to comment on their social feed and ask questions or immediately copy their trading angle. In an ideal world, the expert trader makes money and those who follow in making some profit too. Although it doesn’t always work out that way, with even profitable traders are likely to have a strike rate that allows for multiple losing trades.

There is legitimate scalability in social trading, particularly in the stock and forex markets where liquidity is unrivalled. This means even those who follow expert traders with auto-copy trades should find it possible to get orders matched at the same or similar prices to the experts.

GameStop was the proving ground for social trading

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The unprecedented trading activity on the GameStop share price in 2021 was further proof of the power of social trading. Retail traders collaborated on the share price of GameStop, after getting wind of plans among several institutional investors and hedge funds to short-sell the GameStop share price. Instead, retail traders attempted to buy the price and force it significantly higher than its true market value, pushing the institutional investors firmly into the red.

Social trading is helping to democratise financial trading and investments, levelling the playing field while rewarding those who wish to share their knowledge, expertise and trading angles with those lacking the confidence – or time – to find their own opportunities.

There is genuine transparency about social copy trading. These expert traders that put themselves on a pedestal are required to showcase their active portfolios and their overall strike rates in the markets. There is no hiding place. In truth, the more people that share investment and trading ideas, the better, allowing the everyday person to become smarter and more agile about the way they invest for the future.